1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Articles (12) 

A Rough Estimation of Facebook's Intrinsic Value

May 21, 2012 | About:

Starting with a base estimate of annual Free Cash Flow at a value of approximately $950,000,000 and the number of shares outstanding at 2,140,000,000 shares; we used an assumed FCF annual growth of 15 percent for the first 10 years and assume zero growth from years 11 to 15. Review the Free Cash Flow record here:


The resulting estimated intrinsic value per share (discounted back to the present) is approximately $11.14.

Market Price = $34.03 and Intrinsic Value = $11.14 (estimated)

I used a discount rate of 6.25% and the moat appears to be narrow and shallow. The moat can last as long as Google or Yahoo or Microsoft do not design a friendlier website. Once one of the big cloud providers designs a friendlier interface, the moat starts eroding.

For example, if Google+ was easier to use, and it added features like a friendlier eBay style trading, barter or consulting, it could take the lead. Thus far Google+ is too cumbersome and geeky to be useful. However, they are trying to make it better.

Bud Labitan

Author of "The Four Filters Invention of Warren Buffett & Charlie Munger" and "Moats: The Competitive Advantages of Buffett & Munger Businesses"

Rating: 3.9/5 (27 votes)


Kfh227 - 6 years ago    Report SPAM
company has no debt if memory serves so add in cash/equivilents at a minimum to intrinsic value.some would actually add total equity instead in a zero debt situation.please factor this into your iv calc
Budlab - 6 years ago    Report SPAM
FB shares outstanding = 2,140,000,000

Budlab - 6 years ago    Report SPAM
"Invert, always invert." said Charlie Munger. I read somewhere long ago that Warren Buffett would sometimes pay as much as 10 times earnings for a good business. So, as a goofy exercise, I took the $950,000,000 x 10; then divided by the 2,140,000,000 shares and got a per share price of $4.44 and, interestingly, this is about 50% of my rough estimation of their intrinsic value. Since Buffett likes to buy around a 50% discount to intrinsic value, can we say he would be interested at $4.44 ? The "business" must be understandable, have "enduring" competitive advantages, able and trustworthy managers, and a bargain price relative to "intrinsic value per share."
Kfh227 - 6 years ago    Report SPAM

NPR had something interesting about hte threat to facebook.

most of their revenue comes from advertising that occurs i na web browser. As people move more and more towards smart phones and apps, the advertising model could break. Facebook has yet to figure out how to monetize facebook from a smartphone app standpoint.

I also tinkered with number:

1) Woudl not touch this stock

2) Assumieng (1) were false ... $16B is fair value. Not $100B. Nice to see FB crashing as I speak.
Johnheiderscheit - 6 years ago    Report SPAM

I think the FB offering is going to end up with the May 2010 Flash Crash as a major long term impediment to getting retail investors interested in owning stocks.

Also, I think the discount rate you use (6.25%) is way too low. I would never use less than 10% for a moderate moat business.
AlbertaSunwapta - 6 years ago    Report SPAM
Ahhh, but can they pull an AOL and now use their overpriced shares to buy companies to boost their real intrinsic value.
Batbeer2 premium member - 6 years ago
Why are people discussing the moat and not the business it surrounds ?
Bill.Smith - 6 years ago    Report SPAM
Hey, Batbeer: I'll second that, and add--is there enough operating history to establish that they are able, competent, trustworthy, and have the presence of a moat? I'm thinking not.

In my book, IPO = initially probably overpriced

Please leave your comment:

Performances of the stocks mentioned by budlab

User Generated Screeners

DBrizanAM 17Jun2018 550p
DBrizanAM 17Jun2018 543p
DBrizanAM 17Jun2018 531p
HOLKLSUMini Group 2018 Q3 Trending
DBrizanAM 17Jun2018 415p
DBrizanAM 17Jun2018 107p
DBrizanAM 17Jun2018 106p
DBrizanAM 17Jun2018 1255p
mathew94Retail Growth
Kevin0405Graham formula
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat